As Market Nears Highs, Options Investors Show Nervousness

As the Dow Jones Industrial Average hovers near a record, many options traders are preparing for the worst, with one investor expressing fear that the blue-chip index could test the lows of last June by the beginning of next year.

With the Dow some 65 points away from the October 2007 peak, options traders piled into bearish bets on the SPDR Dow Jones Industrial Average exchange-traded fund (DIA). Nearly 70% of trading on the popular Dow fund’s options Friday involved bearish “put” options protecting against declines in the shares that track the blue-chip index.

Put options grant the right to sell shares of the Dow ETF at a set price by a designated date. They become more valuable as the ETF falls.